In the third quarter of 2020, the dollar share of global foreign exchange reserves slipped to its lowest level in nearly a quarter of a century. But don’t let the figures fool you: The green background is as fundamental to the global financial system as it has ever been.
Data from the International Monetary Fund shows that the dollar share of reported reserves fell to 60.5% in September. The depreciation was increased in nominal terms as a result of the depreciation of the currency over the past year. But even taking that into account, the real dollar view of the major banks seems to be higher than it looks.
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Moreover, that appearance rose again in the fourth quarter.
After adjusting for currency market movements, Goldman Sachs notes that dollar holdings rose more than the euro, Japanese yen, Chinese Yuan or British pound holdings in the third quarter.
At 5.9% of global reserves, the yen’s share is high compared to recent decades. But that increase certainly detracts from dollar demand. Many big yen holders are trying to get more dollars through currency exchange. These popular trades have led to an increase in foreign purchases of short-term Japanese government bonds.
Most central banks won’t break down their holdings in depth, but the Reserve Bank of Australia will be pretty obvious. It has held about $ 6.8 billion in U.S. dollar denominated securities since June, a sum that is almost triple when considering the publication of derivatives. The approximately $ 3.7 billion in yen stocks is cut in half after the same calculus.
Asian central banks were also evacuating foreign exchange in the fourth quarter of 2020. China and South Korea’s investments rose at the fastest rate in seven and 10 years respectively. Taiwan rose at the fastest rate on record in November – and again in December.
We do not know for sure what level of that is denominated in dollars, but the green background may be well represented. The rise in purchases seems to be going against a rally in their currencies, especially against the dollar. Research by Exante Data shows that central banks were already buying more dollars than other currencies as the year ended.
There are reports suggesting that the dollar fell in weight last year after the Federal Reserve ‘s actions in February and March played a key role in halting the global financial downturn. The dollar’s share in reserves is likely to recover to reflect that fact.
This story was published from a wire group group with no text changes.